Discounted Cash Flow Valuation
Presented below are data for Rom Com Truck:

Compute the value of a share of Rom Com common stock using the discounted cash flow method.

Do not round your computations until your final answer. Round final answer to two decimal places.

$????

Discounted Cash Flow Valuation
Presented below are data for Boso Audio:

Compute the value of a share of Boso common stock using the discounted cash flow method.

Do not round your computations until your final answer. Round final answer to two decimal places.

1. There are two goods, bread and butter. A person has spent all their income on bread and butter. The price of bread is $2 and the price of butter is $4. This person tells you that the last unit of bread he consumed increased his utility by 50 utils; the last unit of butter he consumed increased his utility by 80 utils. Has this person maximized his utility? If not, should he consume more bread and less butter OR less bread and more butter?

2. There are two goods, food and clothing. The price of food is $25 and the price of clothing is $100. A person has spent all their income on the two goods. The person has a marginal utility from food of 500 utils; the marginal utility of clothing is 3,000 utils. Has this person maximized his utility? If not, should he consume more food and less clothing OR less food and more clothing?

3. A person spends his entire income on the only two goods available. The last dollar spent on Good A increased his utility by 40 utils. The last dollar spent on good B increased his utility by 60 utils. Has this person maximized his utility? If not, should he consume more A and less B OR less A and more B?

4. Suppose that Jack and Jill both shop in the same store; therefore, they pay the same prices for X and Y. Will Jack and Jill both have the same marginal rate of substitution? Explain why or why not.

5. Suppose that beer sells for $2 per bottle and burgers sell for $4 each. Jimmy finds that the last burger he ate added exactly as much to his overall satisfaction as the last beer he drank. Has Jimmy maximized his utility? If not, should he have bought more beer and fewer burgers OR less beer and more burgers?

6. Suppose that a person’s indifference curves are graphed with good Y on the vertical axis and good X on the horizontal axis. At this person’s current consumption bundle the slope of their indifference curve is equal to -1/4. The price of good X is $2, and the price of good Y is $6.

A. How many units of good X would this person just be willing to give up to obtain one more unit of Y?

B. How many units of good Y would this person just be willing to give up to obtain one more unit of X?

C. Has this person made an optimal choice? If not should they consume more X and less Y, or should they consume more Y and less X?

Mr. Puffins Muffins is considering buying a new delivery truck.

Two options are being considered.

Option 1: The new truck will cost $95,000. It has an expected life of seven years, salvage value of $9,000 and will be depreciated using the straight line method.

At the end of the seven year the truck will be sold.

Option 2: Instead of paying the $95,000 all at once, a second option is to lease a truck for $25,000 down and $15,000 a year for 7 years. At the end of the lease a disposition fee of $800 will be paid.

With either option, the new truck is expected to generate cost savings of $20,000 in cash flows for each of the seven years of operations.

Mr. Puffins Muffins’ cost of capital is 12%.

The company uses NPV to evaluate capital projects.

Based on the NPV, which option should the company pursue and why?

4. Why would a researcher test a one-tailed vs. a two-tailed hypothesis?

5. Why would it be impossible for a researcher to test the following hypothesis using a t-test? H1: Female homicide offenders are more likely to be sentenced to maximum security prison than male homicide offenders.

6. If the null hypothesis in a t-test for two samples is not rejected, what conclusion can be drawn about the two means of the categorical variable?

7. Two groups of subjects participated in an experiment designed to test the effect of frustration on aggression. The experimental group of 40 subjects received a frustrating puzzle to solve, while the control group of 70 subjects received a very easy version of the same puzzle. Levels of aggression was measured for both groups where higher scores are indicative of higher levels of aggression. The experimental group (high frustration) had a mean aggression score of 4.0 and a standard deviation of 2.0. The control group (no frustration) had a mean aggression score of 3.0 and a standard deviation of 1.5. Using these results, formulate a research and null hypothesis and test the null hypothesis at the .01 level of significance.

8. Assume you collected larger samples of individuals to test your null hypothesis in question #7. Specifically, the sample sizes increased to 200 subjects in each group. Do your results and conclusions change from the test of the smaller sample sizes?

Create a program named CmdLineCalc.java that works like a simple calculator. You'll run this program from the command line:

$ java CmdLineCalc 1 + 2
3.0

$ java CmdLineCalc 1 - 2.5
-1.5

$ java CmdLineCalc 3 + 4 - 5
2.0

$ java CmdLineCalc 6.5 - 7 + 8
7.5

To keep it simple, your program only needs to support addition (+) and subtraction (-). You may assume that, starting with the first argument, every other argument will be a number. The arguments at odd indexes in the array will be operators. There is no limit to the number of arguments, that is, until the computer runs out of memory. The program should display the answer rounded to one decimal place.

There are three types of errors you need to handle: 1) the user might forget to give you command-line arguments, 2) the expression itself might be incomplete, and 3) the user might use operators you don't support. Here is what you should output in those cases:

$ java CmdLineCalc
Missing expression

$ java CmdLineCalc 1 +
Invalid expression

$ java CmdLineCalc 2 % 3
Invalid operator: %

When an error occurs, display the appropriate message and call System.exit() to terminate the program. Use a status of 1 to indicate that an error occurred. (By default, programs exit with a status of 0, meaning success.)

Any answers will receive a like.

Recall again that Rind & Bordia (1996) investigated whether or not drawing a happy face
on customers’ checks increased the amount of tips received by a waitress at an upscale
restaurant on a university campus. During the lunch hour a waitress drew a happy,
smiling face on the checks of a random half of her customers. The remaining half of the
customers received a check with no drawing (18 points).
The tip percentages for the control group (no happy face) are as follows:
45% 39% 36% 34% 34% 33% 31% 31% 30% 30% 28%
28% 28% 27% 27% 25% 23% 22% 21% 21% 20% 18%
8%
The tip percentages for the experimental group (happy face) are as follows:
72% 65% 47% 44% 41% 40% 34% 33% 33% 30% 29%
28% 27% 27% 25% 24% 24% 23% 22% 21% 21% 17%

d. Write null and alternate hypotheses that correspond with your answer to
question #c. If you decided to perform a one-tailed test, make sure and
specify which of the two groups you predict will be higher/lower.

The reason most economists believe the Fed targets ________ is because of constant

shifts in ________ caused by changes in transaction technologies.

A) interest rates; the money supply

B) the money supply; money demand

C) interest rates; money demand

D) the money supply; interest rates

The FOMC has ________ members: the ________ members of the Board of Governors

and the presidents of ________ of the Federal Reserve Banks.

A) ten; seven; three

B) twelve; seven; five

C) three; two; one

D) seven; seven; zero

Open-market operations are conducted ________ at the open-market desk at the

________.

A) monthly; Bank of America

B) weekly; FOMC headquarters in Washington, DC

C) daily; Federal Reserve Bank of New York.

D) daily; Treasury Department

Hayden Inc. has a number of copiers that were bought four years ago for $32,000. Currently maintenance costs $3,200 a year, but the maintenance agreement expires at the end of two years, and thereafter, the annual maintenance charge will rise to $9,200. The machines have a current resale value of $9,200, but at the end of year 2, their value will have fallen to $4,700. By the end of year 6, the machines will be valueless and would be scrapped.

Hayden is considering replacing the copiers with new machines that would do essentially the same job. These machines cost $27,000, and the company can take out an eight-year maintenance contract for $1,900 a year. The machines would have no value by the end of the eight years and would be scrapped.

Both machines are depreciated using seven-year straight-line depreciation, and the tax rate is 40%. Assume for simplicity that the inflation rate is zero. The real cost of capital is 7%.

1. Calculate the equivalent annual cost, if the copiers are: (i) replaced now, (ii) replaced two years from now, or (iii) replaced six years from now.

2. when should he replace its copiers? Now, after two years, or six years?

Complete the following chi square test:Show all work.

Example Chi Sq.

40% of Americans say that their favorite pastime is sports, 40% say that it’s time with their family, and 20% name something else. A survey of your neighborhood finds that 10 people report a preference for sports, 15 for being with their families, and 5 something else. Do your neighbors differ from Americans overall?

Activity Observed Expected EF O-E (O-E)2 (O-E)2/E

Sport 10 .4 12 -2 4 .33

Fam 15 .4 12 3 9 .75

Other 5 .2 6 -1 1 .17

30 2 = ∑ (O-E)2/E = 1.25

Is Paris, Chicago, or NY the most romantic city?

City Observed Expected EF O-E (O-E)2 (O-E)2/E

Chicago 2 .33

NY 40 .33

Paris 58 .33

100 2 = ∑ (O-E)2/E =

Is there a significant correlation between these two sets of numbers?

Weight Time

46 44

55 27

61 24

75 24

64 36

75 36

71 44

59 44

64 120

67 29